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Why you shouldn’t stress out when your credit score drops

My credit score has dropped 50 points. Help! Firstly, don’t freak out. A drop in your credit score may seem alarming, especially if you haven’t done anything but small changes to your score are quite common and can happen to anyone.

Let’s take a look at 4 common reasons why your score might change.

1. The scoring model has changed

Just like you get your car serviced and tuned up, credit reporting bodies need to tweak and adjust their credit scoring model from time to time. This is what we in the biz call a “score recalibration”. New data is constantly being reported to the credit reporting bodies, so they’ll occasionally need to fine tune their calculations to make sure your score is as relevant and accurate as possible.

2. There’s new information on your credit file

Your credit score is calculated based on the information in your credit file. So when new information is added to your file, your score may change as a result. As comprehensive credit reporting is starting to be adopted in Australia, small and frequent changes to your score are going to become more common as your file is slowly going to reflect all that additional information such as your repayment history.

3. Old information has dropped off your credit file

The information on your credit file doesn’t stay there forever. It only lasts for a limited period of time and once that time is up, the information will drop off and will no longer impact your score.

4. Entries on your credit file ageing over time

How long an entry has been on your credit file can actually impact your score. For example, if your credit card enquiry has gone from 1 year old to 2 years old, you may see a change in your score. So, even if you haven’t done anything new, you may see some movement in your score as your credit file information ages over time.

The bottom line is: credit score changes happen all the time and this is perfectly normal. Small fluctuations in your score aren’t a huge cause for concern. Try to focus on good long-term credit behaviour such as limiting the number of credit applications you make and paying all your bills on time.

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